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Exploring consumption-based asset pricing model with stochastic-trend forcing processes

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  • Tony Wirjanto

Abstract

Using Canadian data, the consumption-based asset pricing model is studied, defined in terms of nondurable and durable goods consumption. A two-stage estimation procedure is used, which takes account of the presence of common stochastic trends in the forcing processes. This method yields more reasonable estimates of the preference parameters than the previous studies did, and the asset-pricing equation is not rejected by the data. Moreover, the preference specification adopted in this paper allows a number of useful economic information to be obtained. The additive separability assumption and the Cobb-Douglas functional form of the utility function are ruled complements in the sense of Edgeworth and Pareto.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 14 ()
Pages: 1591-1597

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Handle: RePEc:taf:applec:v:36:y:2004:i:14:p:1591-1597

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Web page: http://www.tandfonline.com/RAEC20

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Cited by:
  1. Elena Márquez de la Cruz, 2005. "La elasticidad de sustitución intertemporal y el consumo duradero: un análisis para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 455-481, September.
  2. Elena Marquez de la Cruz & Ana Martinez-Canete & Ines Perez-Soba Aguilar, 2007. "Intertemporal preference parameters for some European monetary union countries," Applied Economics, Taylor & Francis Journals, vol. 39(8), pages 997-1011.

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